South Korea’s SsangYong Motor Co. finds itself back at a life-or-death moment as its largest foreign shareholder and state creditor appear to have run out of patience in the money-losing carmaker.

India’s Mahindra & Mahindra Ltd. confirmed in a videoconference call last Saturday with SsangYong Motor that it cannot deliver the promised new capital of 230 billion won ($186.4 million) to the Korean auto unit as it too has trouble with “plunging auto sales due to the COVID-19 pandemic.”

Mahindra said it would instead consider a special one-time injection of up to 40 billion won over the next three months.

The Indian automaker maintained it would stay “committed” to SsangYong Motor as the largest shareholder with a 74.65 percent stake.

Mahindra, however, suggested it was willing to sell some of its stake, saying it was “actively searching for other investors” for the Korean subsidiary and would continue to “fulfill its role as SsangYong Motor’s main shareholder even if its equity position falls to No. 2.”

Mahindra had earlier projected that SsangYong Motor would need an injection of 500 billion won over the next three years and offered to provide fresh equity of 230 billion won this year.

The news hit SsangYong Motor hard, sending its shares down 3.39 percent to 1,425 won Monday.

The signs are ominous for the carmaker as it had once been dumped by the Chinese auto manufacturer SAIC. The financially distressed Korean automaker was sold to SAIC in 2004, but returned to the market four years later amid technology leakage controversies and conflicts related to corporate restructuring.

In 2011, Mahindra became the new owner of SsangYong Motor, buying a 72.85 percent stake for 550 billion won. It invested an additional 80 billion won in 2013 and 50 billion won in 2019 through the issue of new shares. As of late 2019, it holds 74.65 percent in the Korean company.

SsangYong Motor briefly returned to profit in 2016 but found itself back in dire financial straits, racking up 12 straight quarters of losses from 2017 to 2019. Operating losses during the three-year period have snowballed to 411.2 billion won, with its capital impairment ratio widened to 46.2 percent.

In the first quarter of 2020, SsangYong Motor sold 24,139 units of fully-assembled vehicles and complete knock-downs, down 30.7 percent from the same period a year ago. Given its weak standing, the company’s very survival could be at risk if the coronavirus fallout deepens in the second quarter and saps auto demand further.

SsangYong Motor said it will carry on with its rationalization plans to stave off liquidity concerns. It plans to secure extra cash by selling off non-core assets, including the logistics center in Busan.

SsangYong Motor’s main creditor, the state-run Korea Development Bank (KDB), decline to comment about a possible bailout.

As of late last year, SsangYong Motor’s debt load totaled 410.1 billion won, with 251.4 billion won in short-term and 158.7 billion won in long-term loans. SsangYong Motor has 90 billion won of debt owed to KDB that is set to mature in July.

KDB is not in a position to directly rescue SsangYong Motor as it did for GM Korea in 2018. For one, KDB is a creditor, not a shareholder, in the carmaker. It can roll over the SsangYong’s existing debt of 190 billion won or otherwise would have to nationalize it, which would be too big a burden.

KDB agreed to provide a $750 million rescue package to GM Korea after the automaker shut down one of its plants in Korea and the U.S. headquarters committed $6.4 billion to its Korean unit. The state-run lender was pressured to act as it was the second-largest shareholder in GM Korea with a 17 percent stake.

By Kim Gang-rae, Park Yun-gu and Kim Hyo-jin

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